Marketplace, an American Public Media Program, Interviews (left to right) Timothy Geithner, Hank Paulson and Ben Bernanke in March 2018

By Pam Martens and Russ Martens: May 1, 2019 ~

Could Bernanke, Paulson and Geithner have possibly picked a more self-serving title for their latest revisionist history of their secret $29 trillion bailout of the most insidiously corrupt industry in America? Their new book is titled Firefighting: The Financial Crisis and Its Lessons. Every municipal and volunteer firefighter in America should come together to file a class action lawsuit against the three for invoking an honorable profession in their dishonorable gambit to set Wall Street up for another obscene heads-we-win, tails-you-lose bailout.

What the shameless trio – former Fed Chair Ben Bernanke; former Treasury Secretary under G.W. Bush and Ex-CEO of Goldman Sachs Hank Paulson; and former New York Fed President and Treasury Secretary under Obama, Tim Geithner – are up to is to provide cover for the Wall Street lobbyists who are trying to bully Congress into repealing the sections of the Dodd-Frank financial reform legislation that prevent the Fed from throwing another $29 trillion at Wall Street in the next crisis while accepting toxic waste as collateral.

The public can’t be expected to remember the gritty details of the thousands of shills in service to Wall Street. So here’s a quick refresher course. Without any Congressional awareness or oversight, Bernanke, as head of the Fed during the crisis, authorized loans cumulatively totaling over $29 trillion to the most serially charged banks on Wall Street, as well as to foreign banks and hedge funds serving billionaires. Bernanke’s Fed fought the U.S. media in court for years to keep from making this information public. The gory details were only fully revealed when the Government Accountability Office (GAO) published its audit in July 2011 of just some of the Fed’s so-called “emergency lending” programs ($16 trillion) and the Levy Economics Institute added in the other secret programs to round out the tab to $29 trillion in December of that year.

The GAO audit showed that Citigroup, an insolvent mega bank during the crisis whose stock at one point was trading at 99 cents, received over $2.5 trillion in cumulative loans from the Fed, despite the fact that the Fed is not allowed to loan to insolvent institutions.

There is significant evidence that long before the public became aware of the teetering condition of Citigroup, Bernanke was propping it up with the kind of support that had never happened in the entire history of the Fed. On August 20, 2007, more than a year before the collapse of Lehman Brothers, the Federal Reserve granted Citigroup an exemption that would allow it to funnel up to $25 billion from its FDIC insured depository bank, Citibank, to the mortgage-backed securities speculators at its broker-dealer unit. The Federal Reserve notes in its waiver letter that the bank “is well capitalized.” (Federal Reserve Exemption to Citigroup to Loan to Its Broker-Dealer, August 20, 2007) The Fed’s mandate is to be the lender-of-last-resort to commercial banks that make loans to the real economy, not to Wall Street’s casino.

Geithner is the guy that was hobnobbing with Citigroup executives as it spun toward insolvency instead of functioning as a tough regulator as the President of the New York Fed. Geithner’s appointment calendar for 2007 and 2008 shows that he held 29 breakfasts, lunches, dinners and other meetings with Citigroup officials. On January 25, 2007, Geithner not only hosted Sandy Weill – the former Chairman and CEO of Citigroup and one of its largest shareholders – to lunch at the New York Fed, but Geithner brought his teenage daughter to the lunch. (In case you’re wondering, Take Your Daughters and Sons to Work Day was April 26 that year, not the day of this luncheon.) A few months later, on May 17, 2007, Geithner joined Weill for breakfast at the expensive Four Seasons.

According to a report in the New York Times, Geithner admitted to receiving a job offer from Weill to become Citigroup’s CEO in late 2007 as it piled up losses on toxic debt. Geithner turned down the offer and eventually became U.S. Treasury Secretary in 2009, where he was a strong advocate for keeping Citigroup afloat. (As Wall Street On Parade reported in 2016, Michael Froman, an executive at Citigroup in the leadup to the financial crash, was hand-picking much of Obama’s cabinet and senior officials.)

At most of Geithner’s meetings with Citigroup officials, he was the lone representative from the Fed and he condescended to meet at Citigroup’s headquarters instead of at the offices of the New York Fed. His one on one meetings included Robert Rubin, former U.S. Treasury Secretary and Chair of the Citigroup Executive Committee and Charles “Chuck” Prince, the CEO who succeeded Weill. (Both men would be referred to the U.S. Department of Justice by the Financial Crisis Inquiry Commission for potential criminal investigation. The DOJ refuses to comment on what became of those referrals.) Geithner also met with Gary Crittenden, the Chief Financial Officer of Citigroup at the time who would go on to be charged and fined by the Securities and Exchange Commission for lying about the extent of Citigroup’s subprime mortgage debt.

Neil Barofsky was the Special Inspector General of the Troubled Asset Relief Program (TARP), the taxpayer bailout program that Congress knew about and voted on. Its hundreds of billions in loans to Wall Street banks served, effectively, as a smokescreen for the $29 trillion being secretly funneled out of the Fed to the same institutions. When Barofsky wrote his memoir of the crisis, Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street, it carried a revealing window into the character of Geithner. According to Barofsky, the Home Affordable Modification Program (HAMP) did not have a goal of keeping struggling families and children in their homes. It’s real goal, according to Geithner, was to “foam the runway” for the Wall Street banks, keeping the pace of foreclosures at a speed they could handle.

Barofsky wrote:

“For a good chunk of our allotted meeting time, Elizabeth Warren grilled Geithner about HAMP, barraging him with questions about how the program was going to start helping home owners. In defense of the program, Geithner finally blurted out, ‘We estimate that they can handle ten million foreclosures, over time,’ referring to the banks. ‘This program will help foam the runway for them.’ ”

Paulson was Chairman and CEO of Goldman Sachs and had worked there for three decades before he was nominated to become U.S. Treasury Secretary by President George W. Bush on June 19, 2006. He was confirmed by the Senate before the end of that month. Paulson was heading Goldman Sachs when a large portion of its toxic collateralized debt obligations (CDOs) were sold to unsuspecting investors, including early Abacus deals. The Senate’s Permanent Subcommittee on Investigations’ report on the financial collapse found that “Goldman Sachs alone packaged and sold $73 billion in synthetic CDOs from July 1, 2004 to May 31, 2007.”

One of the deals that was constructed and sold while Paulson was heading the firm was called Abacus 2004-1. Goldman shorted the deal (betting the deal would lose value) by 10 to 1. According to the Financial Crisis Inquiry Commission, Goldman made approximately $930 million on the deal while the long investors lost almost all of their money.

Paulson’s timing of his exit from Goldman could not have been more advantageous to him as the details of the subprime crisis had yet to tank Goldman’s share price. Shortly after Paulson’s confirmation by the Senate, he filed to sell approximately $500 million of his Goldman stock, which was conveniently trading at close to an historic high of $152.20 (the closing price on June 29, 2006). Under rules established for private sector persons having to sell their stock holdings to take a position in the Federal government and avoid conflict of interest concerns, Paulson was going to be able to potentially save upwards of $200 million in capital gains taxes. By November 2008, at the height of the crisis, Goldman Sachs’ stock would have lost two thirds of its value from when Paulson filed to sell his half-billion dollar stake.

The Bernanke, Paulson, Geithner pitch book to once again unshackle the Fed from its already loose moorings and turn it back into an unlimited money spigot to bail out Wall Street’s corrupt practices, began last year when they also invoked the heroic garb of firefighters, making the rounds of think tanks and opinion pages. But that effort didn’t result in Congress gutting the Dodd-Frank provisions on bailouts so they are now upping their game in drag as a book tour.

“Even if a financial crisis is now less likely, one will occur eventually. To contain the damage, the Treasury and financial regulators need adequate firefighting tools…But in its post-crisis reforms, Congress also took away some of the most powerful tools used by the FDIC, the Fed and the Treasury. Among these changes, the FDIC can no longer issue blanket guarantees of bank debt as it did in the crisis, the Fed’s emergency lending powers have been constrained, and the Treasury would not be able to repeat its guarantee of the money market funds. These powers were critical in stopping the 2008 panic.”

Compare that to this excerpt from the book:

“After the crisis, Tim and Ben hoped to preserve the new powers we had used to stabilize the system and secure additional authority for first responders to wind down systemically dangerous institutions in an orderly fashion in future crises. The Obama administration also proposed even stronger guarantee powers for the FDIC, to reduce the likelihood of a Lehman-type failure and reduce the need for the Fed to orchestrate one-off rescues of individual firms like Bear and AIG. But the TARP authority expired, and the final congressional version of Dodd-Frank curtailed rather than expanded the government’s firefighting tools. The FDIC’s broad guarantee authority, so effective during the crisis, was eliminated, as was the ability of the Fed to lend to individual nonbank financial firms under its 13(3) emergency powers. The Fed retained the ability under 13(3) to lend to broad classes of institutions as it had done for primary dealers, and to support important funding markets, as it had done for commercial paper, but with less discretion and less ability to take risk than before. For example, Congress limited the Fed’s discretion to judge when its loans are secured to its satisfaction, making it harder for the central bank to accept risky collateral in a future emergency. There was simply no political support for anything that could have been construed as enabling future bailouts.”

“And I think the biggest reason they’re angry is in America, if we work hard and we succeed, people expect there to be rewards and when you fail, they expect you to fail and they don’t expect the government to come in and rescue. And we weren’t trying to rescue Wall Street. You know, you had to, to deal with this — there is so much concentration to deal with a problem, we had to go to the source and what we did is we put a tourniquet to stop the bleeding but, you know, because if we hadn’t done that, if we hadn’t stopped the collapse, many, many Americans would have been hurt…”

This is revisionist history at its finest. Millions of Americans were hurt. More than 8.7 million Americans lost their jobs. Between 2006 and 2014, close to 10 million American homes were lost to foreclosure. The financial crisis produced the longest recession in the post World War II era; 2.5 million businesses closed down; income inequality grew to the highest rate since the Great Depression. As of 2017, the top 0.1 percent of Americans are taking in 188 times the income of the bottom 90 percent of Americans.

This is Wall Street’s institutionalized wealth transfer system that Bernanke, Paulson and Geithner want to scrub from their resumes and history books by offering an alternative reality while simultaneously continuing to serve the interests of Wall Street. The media should be ashamed of themselves for participating in this ruse. We’re specifically pointing at you NPR.